Solar panels may lose green tax break

Published: 25 Jun 2012, 10:21

By:

Emma Hughes

Last week the European Commission ordered Government to remove the legislation that currently allows reduced VAT rates for “green” goods and services on the grounds that it failed to comply with the EU's VAT Directive. Today, after concerns were raised about the true impact of this move, the European Commission has offered the UK a way round a ruling.

The UK Treasury currently charges a five percent rate of VAT on some energy-saving materials, such as solar panels, insulation and other energy-efficiency measures, instead of the standard 20 percent. This reduced rate has offered UK home and business owners an additional incentive to ‘go green’, and is expected to work hand-in-hand with Government’s flagship energy policy, the Green Deal, which is due to be launched in October this year.

Those working within the energy industry argue that if this reduced rate is pulled, the Green Deal will be significantly affected as the policy works by ensuring that monthly repayments for energy efficiency measures do not cost more than the resulting energy savings they deliver.

While it looked like the Treasury would have to fight to keep the reduced rate; the European Commission has now come out and said that the UK could defend the exemption using a clause in the VAT Directive that allows reduced VAT rates on construction and renovation programmes that are part of a “social policy.”

It is thought that the ECO or Green Deal schemes could fit into this social policy category; however Government is now required to provide evidence to prove this is the case.